The payments industry is exciting – new developments are innovative, disruptive and game-changing. Real-time payments is one such development – many countries are building or planning real-time clearing systems for domestic payments, but cross-border payments are getting left behind, taking a day or more to reach their destination. However, the digital economy and growing global trade are fueling the need for real-time cross border payments, which are typically made across a network of correspondent banks without a central authority or clearing system. This is an ideal use for distributed ledger technology (DLT).
Ripple is a leading DLT solution that uses a consensus process to settle cross-border payment transactions real-time. Ripple’s solution is built around a network that requires no central operator, resulting in instant transaction verification and settlement certainty. With the use of Ripple, financial institutions can settle cross-currency payments efficiently by connecting to other banks around the globe directly. Ripple improves transparency and eliminates time delays, resulting in better customer service and lower back-office costs for banks.
Correspondent banking may have its flaws, but it works – there are thousands of banks worldwide engaged in cross-border payments and moving them all to a new DLT network together is not practical or necessary. It is more realistic for a small number of banks to form a DLT network and then scale it up steadily. This approach would give the network freedom to evolve into the best possible end state model.
For the idea to take shape, first, like-minded banks need to get together to form a DLT network and agree on the infrastructure to use. Ripple is a good choice, not least because it facilitates settlement in fiat currency and has a flexible architecture using the Interledger Protocol which does not require use of a cryptocurrency (although it does have its own native digital asset, XRP, which can be used for settlement to reduce liquidity costs). The Ripple enterprise solution is mature enough to launch now and scale a cross-border payments network, and there is already one group of banks who have completed pilots with Ripple who are forming an alliance to build one.
There is room for more than one DLT cross-border payments network and it is clear that the time is right for banks to act now to keep ahead of the competition. There is a unique opportunity now to collaborate to launch the foundation of a real-time, 24×7, transparent and efficient cross-border payments network.
Read more about this in Accenture’s latest point-of-view, The Journey to Real-Time Cross Border Commercial Payments using Distributed Ledger Technology.